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DIRECTIVE

On controlling the amount and quality of credit and loans for securities investment and trading, aimed at controlling inflation and boosting economic growth

In the early months of 2007, the State Bank continued applying a flexible monetary policy with a view to stabilizing interest rates and exchange rates, controlling inflation and boosting economic growth. Credit activities have been effectively expanded, the proportion of bad debts has been reduced; credit structure has gradually changed in response to the demands of the economy; loans for securities investment and trading have been controlled more tightly. However, credit capital trends to increase at a high rate compared to the same period of previous years and the whole year's target and, therefore, may exert adverse impacts on inflation control in this year and in subsequent years; the quality of credit for some branches and domains remains poor; loans for securities investment and trading involve potential risks as the securities market is in a bearish trend; and several shortcomings are seen in the collection of market information in service of assessment and administration work.

In furtherance of the Prime Minister's direction at the Conference on the realization of the 2007 banking tasks and the enhancement of the management and supervision of securities activities (the Government Office's Notice No. 17/TB-VPCP of January 26, 2007, and Notice No. 20/TB-VPCP of January 29, 2007), the State Bank Governor requests credit institutions and units within the State Bank to apply the following measures to control the amount and quality of credit and loans for securities investment and trading:

1. For credit institutions:

1.1. To continue applying in a coordinated and effective manner capital mobilization solutions in order to increase loans and investment in the economy in 2007 and subsequent years; to attach importance to adjusting the structure and terms of mobilized capital in consistency with credit structure and terms, ensuring safety for their business activities.

1.2. To effectively expand credit for the economy according to the following requirements:

a/ Evaluating credit activities in the early months of 2007 in order to properly adjust the amount and structure of credit as well as the credit growth rate to be commensurate with the capital mobilization capability, the structure of mobilized capital and the State Bank's orientations on the increase of credit for the economy in 2007 and subsequent years.

b/ Strictly observing by the State Bank's regulations on safety ratios in operation of credit institutions; tightly controlling credit quality in order to reduce the proportion of bad debts.

c/ Expanding while restructuring credit across various branches and domains so as to reduce risks and meet diversified capital demands of the economy; attaching importance to expanding credit to small- and medium-sized enterprises and production households.

d/ State-owned commercial banks, especially the Bank for Agriculture and Rural Development of Vietnam and the people's credit fund system, shall boost the expansion of credit for agriculture and rural development; other commercial banks shall expand their networks and reserve capital for expanding credit for agriculture and rural development.

e/ Raising the capacity of collecting information, recognizing, assessing, measuring, monitoring and controlling credit risks and other business risks; tightly controlling risks for loans for securities investment and trading, loans for real estate investment and trading, loans for consumption purposes and foreign currency loans.

f/ Continuing to apply solutions for expanding credit and raising credit quality as specified in the State Bank Governor's Directive No. 02/2006/CT-NHNN of May 23, 2006, on enhancing measures to prevent and limit risks in business activities of credit institutions and Directive No. 02/2005/CT-NHNN of April 20, 2005, on raising credit quality and credit growth in consistence with capital mobilization capacity, risk control and assurance of the system safety.

g/ Notarizing and registering security transactions in accordance with law; inspecting and closely monitoring security assets in order to prevent risks and handling security assets to recover debts, if the debtors are incapable of paying their debts.

1.3. In order to contribute to boosting the sustainable development of the securities market and, at the same time, limit risks for loans and valuable papers discounted for securities investment and trading, credit institutions shall apply the following safety measures:

a/ To keep outstanding loans made and valuable papers discounted for securities investment and trading at a level below 3% of their total outstanding loans. Outstanding loans made and valuable papers discounted for securities trading and investment include loans made and valuable papers discounted for securities companies; loans provided to other organizations and individuals for securities investment and trading with the mortgage of securities and/or other security assets; valuable papers discounted for organizations and individuals to conduct securities investment and trading.

b/ To provide loans and discount valuable papers for securities investment and trading and provide loans with the mortgage of securities as security assets in strict accordance with the law on loan provision and guidance of the State Bank, specifically:

- Providing loans for the purchase of stocks under the State Bank's guidance in Document No. 7318/NHNN-CSTT of August 25, 2006, on provision of loans for the purchase of stocks with stocks mortgaged as security.

- Strictly observing relevant regulations on loan provision for securities investment and trading in the State Bank Governor's Decision No. 03/2007/QD-NHNN of January 19, 2007, amending and supplementing a number of articles of the Regulation on assurance of safety ratios in operation of credit institutions, issued together with the State Bank Governor's Decision No. 457/2005/QD-NHNN of April 19, 2005. Taking the initiative in recovering debts according a set schedule, ensuring that debts owed by securities companies they control will be fully recovered within one year from the effective date of Decision No. 03/2007/QD-NHNN.

- Providing loans to securities companies they do not control in strict accordance with the Regulation on provision of loans by credit institutions to their customers, promulgated together with the State Bank Governor's Decision No. 1627/2001/QD-NHNN of December 31, 2001, and relevant legal documents; evaluating and tightly controlling loans in order to ensure timely recovery.

- Making discount of valuable papers for securities investment and trading in accordance with the Regulation on discount and rediscount of valuable papers by credit institutions for their customers, promulgated together with the State Bank Governor's Decision No. 1325/2004/QD-NHNN of October 15, 2004; it is prohibited to discount stocks.

- Classifying debts, deducting and using contingency amounts to handle credit risks for loans provided for securities investment and trading and loans provided with the mortgage of securities as security assets and discount valuable papers in strict accordance with the State Bank's regulations.

c/ To enhance internal control and audit of loans made for consumption and production and business activities with security assets in order to detect and handle in time cases in which loans are used improperly for securities investment and trading.

d/ To account and make detailed and accurate statistics of loans made and valuable papers discounted for securities investment and trading, loans provided with the mortgage of securities as security assets, meeting the requirements of business and risk administration and report to the State Bank in accordance with Document No. 3224/NHNN-CSTT of April 10, 2007, on loans made for securities investment, mortgage of securities and foreign capital flow.

2. For units within the State Bank:

2.1. According to their functions and tasks, units based at the headquarters of the State Bank shall advise the State Bank Governor in performing the following tasks:

a/ To continue administering monetary, credit and exchange rate policies carefully and flexibly in order to stabilize the monetary market, control inflation and boost economic growth; to ensure that interest rates are not higher than those of the previous year and exchange rates fluctuate at a reasonable level; to keep the growth rate of the total payment instruments and credit in compliance with the requirements of controlling inflation lower than the economic growth rate in 2007 and subsequent years.

b/ To urgently amend and promulgate legal documents on foreign exchange management in order to enhance the control and tightly and promptly supervise the flow of foreign indirect investment capital into Vietnam.

c/ To study and amend regulations on safety ratios in operation of credit institutions along the line of increasing risk coefficients and levels of deduction for risk reserves regarding loans for securities investment and trading, subjecting loans for stock investment and trading and those made for bond investment and trading to different rates; to guide credit institutions to provide loans for debt restructuring in accordance with the law on banking credit and international practice.

d/ To enhance examination, supervision and handling of violations committed by credit institutions in the provision of loans and discount of valuable papers for securities investment and trading.

e/ To coordinate with functional units of concerned ministries and branches in implementing policies on banking credit in service of agriculture and rural development when the Prime Minister issues a decision amending Decision No. 67/1999/QD-TTg of March 30, 1999, on some banking credit policies in service of agriculture and rural development; to solve problems related to banking credit in the implementation of the laws on land, loan security, notarization, and registration of security transactions.

f/ To coordinate with functional units under the Ministry of Finance in formulating and implementing a mechanism on coordinated management, supervision of, and exchange of information on, the securities market.

2.2. Provincial/municipal branches of the State Bank shall perform the following tasks:

a/ To regularly monitor, report and propose to the State Bank Governor measures for handling problems in credit activities of credit institutions.

b/ To inspect, supervise and examine according to their competence credit institutions' observance of laws in their credit activities and detect their violations in the provision of credit for the economy and for security investment and trading.

3. Organization of implementation:

3.1. This Directive takes effect 15 days after its publication in "CONG BAO."

3.2. The director of the Office, the director of the Monetary Policy Department and heads of units within the State Bank, directors of the State Bank's provincial/municipal branches, and boards of directors and general directors (directors) of credit institutions shall implement this Directive.